Staff help to tie up the benefit package: Changes in company perks have forced firms to find a fresh approach to remuneration. Brian Friedman reports

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The Independent Online
IN THE heady days of the 1980s, executives were rewarded with tax-efficient benefits of every description. The company car was still king, pensions were not capped and share options were widespread.

Today, the tax efficiency of the company car has been marginalised, pensions capped (and the cap itself frozen) and share options are under attack by institutional investors.

As companies seek to ensure that their pay and benefits packages remain attractive, many are warming to total remuneration planning (TRP). This is a simple concept that encourages employers to look at the overall cost of an employee's remuneration package rather than undertake piecemeal analysis. The natural next step will often be to allow staff to determine the make-up of their own remuneration mix. In theory, by giving employees choice, this flexible approach will also give companies better value for money.

By contrast, the conventional remuneration package (company car, pension, private health cover etc) is both inflexible and aimed at the stereotypical executive - middle-aged with 2.4 children. The reality is often very different and many elements of a traditional package may be inappropriate for certain groups of executive.

Most company pension schemes provide death-in-service cover of three or four times salary. The aim of these schemes is laudable - to provide insurance for the dependants of the employee - but many members of staff will have no dependants and may object to their benefits 'spend' providing cover they will never enjoy. Single employees may be more than happy to sacrifice all or part of the death-in-service cover in return for other benefits, such as extended holidays or membership of sports clubs.

Conventional remuneration schemes take little or no account of the benefits package of the employee's spouse. For example, medical insurance is typically provided for executives on a family-cover basis, so there will be unnecessary coverage if both companies offer the benefit. Meanwhile, a second company car may be accepted by the employee (so incurring cost for the employer), but is unlikely to be highly valued if it represents little more than an under-utilised status symbol.

Although the concept of flexible benefits is nothing new, it seems to have been boosted by the reaction to the changes in company car taxation. A recent survey by Stoy Benefit Consulting into the attitudes of about 6,000 companies found that three-quarters were reviewing the provision of cars in the light of the reforms. Of these, only 25 per cent intended to buy out cars altogether through enhanced cash remuneration. The rest intended either to offer a straight cash-for-car alternative or to move towards a 'menu' of alternative benefits.

Arguably, cash is the ultimate in flexibility and employers should simply pay 'clean' cash with little in the way of other benefits. However, this can have unexpected pitfalls. Employees quickly forget that their benefits have been bought out and may put pressure on their employers for the reinstatement of benefits on top of the higher salaries they already enjoy.

For these reasons, an increasing number of companies are turning to flexible benefits, among them Midland Bank and Burton Group. In both cases, enlightened managements have recognised the shortcomings of the conventional package.

Brian Friedman is managing director of Stoy Benefit Consulting. 'If you've got it . . . flex it - the definitive guide to flexible benefits' (price pounds 95) can be obtained by contacting Sandy Johnson at SBC on 071-486 5888.

(Photograph omitted)